Digicel drives by, moves up; recent bonds busy; Sitel bonds gain as Onex eyes possible sale

By Paul A. Harris and Paul Deckelman

New York, Feb. 24 – After a one-day hiatus, the high-yield primary market returned to pricing on Tuesday, bringing one quickly shopped deal to market – a $925 million offering of eight-year notes from Caribbean wireless provider Digicel Ltd. Traders said the new bonds gained in initial aftermarket dealings.

They meanwhile also saw active dealings in recently priced offerings, including Sprint Corp., Dean Foods Co., PetSmart, Inc. and Wynn Las Vegas LLC.

Away from the new deals, there was some upside activity in Sitel Worldwide Corp.’s bonds, spurred by news reports that the call-center operator’s owner – the private equity firm Onex Corp. – is looking to sell the company in a deal that could be worth close to $1 billion.

Also on the M&A front, there was some follow-up activity in the bonds off Valeant Pharmaceuticals International Inc. and Salix Pharmaceuticals Ltd., which had been actively traded on Monday on the news that Valeant has agreed to acquire Salix.

Overall market activity, though, was a little muted, traders said, citing this week’s J.P. Morgan high-yield conference in Florida, which always attracts a big crowd of portfolio managers and other investment decision-makers.

Statistical indicators of junk market performance turned higher across the board on Tuesday after having been mixed on Monday.

Digicel deal atop talk

Digicel priced Tuesday's sole high-yield deal, a quickly shopped $925 million issue of eight-year senior notes (B1//B) that came at par to yield 6¾%.

The yield printed on top of yield talk.

Some of the trading was taking place on emerging markets desks, according to a trader who saw a par ½ bid, 101 offered market, shortly after the terms rolled out.

Citigroup, J.P. Morgan, Barclays, Credit Suisse and Deutsche Bank were joint bookrunners for the debt refinancing.

Riverbed richens

Only one deal is parked on the forward calendar.

Riverbed Technology Inc. is roadshowing a $575 million offering of eight-year senior notes (Caa1/CCC+).

The deal is getting richer, according to a trader who said that discussions on Tuesday were taking place in the mid-9% yield context, down from the mid-10% context on Monday.

Official price talk is not expected until later in the week. The deal is expected to price Friday.

Citigroup, Credit Suisse, Barclays and Morgan Stanley are the joint bookrunners for the LBO deal.

Valeant $9.6 billion by mid-March

Primary market activity is muted at present because prospective issuers are sidelined ahead of earnings reports, sources say.

Also, the J.P. Morgan Global High Yield & Leveraged Finance Conference is presently underway in Miami. That conference, which is scheduled to wrap up on Wednesday, has served to dampen issuance.

The quiet conditions in the primary market are liable to be short-lived.

On Monday, Valeant Pharmaceuticals International spelled out plans for the debt financing it plans to use to fund its acquisition of Salix Pharmaceuticals Ltd., including $9.6 billion of senior notes.

That deal is expected to show up in the next two weeks, according to a trader who is looking for Deutsche Bank to lead the bond offer.

“It should do well, because there are not of lot of health-care bonds out there to buy right now,” the source remarked.

The trader is looking for the notes to come in three tranches, with the expectation they will all likely be dollar-denominated, because Valeant has no euro-denominated debt.

However the euro-denominated junk market is hot right now, the trader said. So it's conceivable that the deal structure could reflect that.

Valeant is a bridged deal, with the bridge financing provided by Deutsche Bank, HSBC, MUFG, DNB and SunTrust.

New Digicel notes firmer

In the secondary market, a trader saw Digicel’s new 6¾% notes due 2023 trading in a100¾-to-101 bid context.

That was up from the par level at which the Kingston, Jamaica-based provider of wireless service to Caribbean countries, Central America and Oceania priced its quick-to-market $925 million deal.

Recent deals seen active

Among some of the deals that priced last week, a trader said that the new Sprint 7 5/8% notes due 2025 generated “some pretty big volume – but they’re not going anywhere.”

He saw the Overland, Kan.-based Number Three U.S. wireless provider’s paper trading between 100¼ and 100½ bid.

A second trader saw them at that same level, calling them down 1/8 point on the day, while at another desk, a market source pegged the bonds at 100¼, down ¼ point, estimating volume at more than $29 million, making it one of the day’s most actively traded issues in Junkbondland.

Sprint priced its $1.5 billion drive-by deal at par on Thursday after the issue was upsized from an originally announced $1 billion.

There was also brisk activity in Dean Foods’ new 6½% notes due 2023, with a trader quoting them at 100 7/8 bid, up ¼ point, on turnover of more than $20 million.

Another trader put the bonds at 100¾ bid, while a third saw them about unchanged in a 100 5/8-to-100 7/8 bid context.

Dallas-based food and beverage company Dean priced $700 million of the notes at par on Friday in a regularly scheduled forward calendar offering.

Several traders saw Friday’s other major offering – the quick-to-market $750 million add-on to Nielsen Holdings NV’s existing 5% notes due 2022 – trading in a 101¼-to-101 5/8 bid context, with one calling them down ¼ point at that price.

Nielsen, the New York-based television and radio ratings and consumer marketing information company, priced the notes at 100.75 to yield 4.832% after the quick-to-market offering was upsized from an originally announced $650 million.

PetSmart pop continues

The new 7 1/8% notes due 2023 backing the planned leveraged buyout acquisition of Phoenix-based specialty retailer PetSmart “have been trading wrapped around 102½,” a trader said.

A second market source quoted the bonds at 102¾, up ½ point on the day, on volume of more than $16 million.

Argos Merger Sub Inc., a special-purpose financing vehicle that will be merged with and into PetSmart upon the acquisition of the pet food and pet supplies and accessories retailer, priced $1.9 billion of the notes at par last Wednesday in a regularly scheduled forward calendar transaction. Before pricing, the offering had been heavily oversubscribed, playing to an order book of more than $10 million, and it immediately moved higher in active aftermarket activity.

Besides the bond deal, the $8.7 billion acquisition of PetSmart by a consortium led by BC Partners is being partly financed by a $4.3 billion seven-year senior secured covenant-light term loan B, with the credit facility also including a $750 million five-year asset-based revolving credit line.

In a research note Tuesday, Gimme Credit senior analyst Kim Noland noted that “debt will increase to near $6.7 billion, and leverage will be elevated from under 1x to over 6x pro forma the new financing. Although the pet business generates robust cash flow, the increase in interest expense is substantial, and credit quality improvement will take time.”

Nonetheless, Noland likes the business’ strong cash flow and cost-saving initiatives, and rates the new notes an “outperform” at a yield-to-worst near 7%.

Also among the recent deals, a trader saw iHeart Communications, Inc.’s 10 5/8% senior secured priority guarantee notes due 2023 trading between 101¾ and 102 bid, while a second trader saw them better, up 3/8 point in a 102-to-102¼ context.

The San Antonio-based broadcasting, digital media and outdoor advertising company priced its quickly shopped $950 million issue at par on Thursday after that deal was upsized from $550 million originally.

Going back a little further, a trader saw Wynn Las Vegas’ 5½% notes due 2025 trading around 100¼ bid, with a second seeing them up ¼ point on the day at 100 ½ bid, with over $20 million having traded.

The Nevada-based gaming concern priced $1.8 billion of those notes at par off the forward calendar on Feb. 11, slightly upsizing the offering from an original $1.75 billion. Although the issue was split-rated (Ba2/BBB-/BB), it attracted some junk investor interest. While the bonds initially traded at or slightly below their par issue price, they had moved back up to above par by Monday of this week.

“The new deals are the ones that have been active, that people have cared to trade in, other than one-off [established secondary market] stuff,” a trader opined.

Sitel surges on possible sale

Away from the new-deal arena, a market source said that Sitel Worldwide’s 11½% notes due 2018 jumped 5 points on Tuesday to 90 bid on busy volume of over $15 million.

At another desk, the bonds were seen going home at 98¾ bid, up 4¾ points.

The bonds got a boost on news reports that the Nashville-based call-center operator’s owner, Onex Corp., is looking to sell the company in a transaction that could be valued at as much as $1 billion, including debt assumption.

There was no firm confirmation on Tuesday from Onex, which was reported to be working with Goldman Sachs to set up an auction for the company.

Salix continues to strengthen

Also in the merger-and-acquisitions world, there was continued robust activity in Salix Pharmaceuticals’ 6¼% notes due 2021, which had jumped by 3 points on Monday on the news that the company is to be acquired by sector peer Valeant Pharmaceuticals International in a $10.1 billion deal.

On Tuesday, the Salix notes gained another 5/8 point to finish at 112 3/8 bid on volume of over $28 million, on top of the $13 million traded Monday.

Meanwhile, Valeant’s 5½% notes due 2023 – which on Monday had fallen by some 1 7/8 points to 100 1/8 on volume of more than $41 million – got some of those losses back on Tuesday, a trader said, regaining 3/8 point to end at 100½ bid, as over $12 million changed hands.

Indicators turn better

Statistical indicators of junk market performance turned higher across the board on Tuesday after having been mixed on Monday.

It was the second higher session in the last three sessions, although the indicators have also been mixed in five sessions out of the last seven.

The KDP High Yield Daily index gained 3 basis points on Tuesday to end at 71.76, its fourth consecutive gain. Tuesday was also its seventh rise in the last eight sessions, among them Monday, when it edged up by 1 bp.

Its yield, meanwhile, came in by 2 bps to 5.2%, its second straight narrowing and fifth such tightening in the last six sessions. The yield had declined by 1 bp on Monday.

The Markit Series 23 CDX North American High Yield index was up by 3/16 point on Tuesday to finish at 106 9/32 bid, 106 11/32 offered, versus the 5/32 loss seen on Monday. Tuesday’s advance was its second in the last three sessions.

The Merrill Lynch U.S. High Yield Master II index continued its winning ways on Tuesday for a 27th consecutive session, moving up by 0.184%, on top of Monday’s 0.117% rise. That winning streak dates back to Monday, Jan. 19.

The latest improvement lifted its year-to-date return to 2.598%, its 23rd straight new peak level for 2015. That was up from 2.409% on Monday.

The index’s yield-to-worst tightened to 5.976% from 6.029% on Monday, its ninth consecutive new 2015 low yield level. It was the first time the yield measure had dipped below the psychologically significant 6% level since last Nov. 14, when it had closed at 5.962%.

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